Capital Trading Group

Alternative Investments within Managed Futures

Breaking Down the 'IOER': Interest paid On Excess Reserves

Posted by Capital Trading Group on Oct 4, 2017 8:32:10 AM

                We decided to start this week's letter with the latest data put out from the Federal Reserve's latest "Survey of Consumer Finance."  The headline data posted shows that the share of overall wealth of the top 1% of Americans was 38.6% and the other 90% of Americans held just 22.8%, which means that the wealthiest 1% of this country are some 70% richer than the other 90%.  We have said all along that the QE policies of central banks have benefitted only the top 1% in terms of income distribution.  This isn't the type of capitalistic distribution I think general Americans had in mind from their monetary printing overlords.  However, we know that the inevitability of such an outcome was almost guaranteed.

             We have written exhaustively on this subject and it is one of the reasons many don't understand why the equity markets continue to rise.  As we talked about last week, the risk is now moving to central banks and their respective governments and away from private wealth generators, or public companies.  Even more so is this largesse beneficial in private equity land where capital is clearly abundant and as such, begets the reduction in public shares available as M&A pushes for alpha and yield and thus must consolidate, stream line, strip down and trim to mask the lack of true productivity. 

            We offer such data, not to frustrate the commoner, but rather to reinforce the driving principles behind the market movement, or shall we say lack thereof.  This lack of volatility is not only present in the volatility indexes themselves, but straight up and obvious, especially in equity land, where the moves are quite linear as the ultra wealthy are flooding their excess cash in a constant compounding investment at its finest, buying frenzy.  The equity markets have become the de-facto new money market as many are calling it.  Pensions Partners put out a great webinar this week and we have this chart from them that distinctly displays the lack of volatility in the SP500 market:

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